Technology Report: Smarter Banks, Fewer Vendors

By Arend, Mark | ABA Banking Journal, June 1993 | Go to article overview

Technology Report: Smarter Banks, Fewer Vendors


Arend, Mark, ABA Banking Journal


With few exceptions, 1992 saw stronger, but fewer technology vendors dominating a shrinking bank systems market. That is the thrust of Automation in Banking 1993, one of consultant M. Arthur Gillis's annual reports on the state of the bank technology industry (the other is Outsourcing in Banking 1993).

But it is by no means the only trend spotted by Gillis, who compiled the report after gathering extensive data on financial institutions and vendors across the country. Gillis is president of Computer Based Solutions, Inc., a New Orleans-based company specializing in advising bankers, particularly community bankers, on technology.

Besides commentary on such topics as outsourcing, technology expense, and systems implications of large bank mergers in the past year, Automation in Banking 1993 provides profiles or listings of 118 major service bureaus, turnkey vendors, and bank software providers, as well as charts illustrating comparative industry statistics.

Wiser spending. If anything surprised Gillis once his analysis of the year was complete, it was the restraint bankers now are showing in spending money on automation.

"Bankers are getting very smart where technology is concerned," said Gillis in an interview, "and they're doing what they should be doing."

Which is more tightly controlling the operations check book, according to the report. In stark contrast to the days not so long ago when it was fashionable to spend large amounts of money on new technology--whether or not it blended with other systems--today's bankers are more careful.

Financial institution technology spending, in fact, decreased in 1992 to $21.2 billion. That's a 5% to 7% drop from the previous year, notes the report. And just 13% of institutions industrywide, albeit the largest ones, are spending 78% of the industry's technology dollars. (Included in Gillis's definition of technology spending are computer-based services, telecommunications, hardware, software, and information systems personnel.)

Where the money goes. The largest piece of the technology budget pie, 34%, went to personnel in 1992, according to Gillis's report. That segment accounted for $7.2 billion of the $21.2 billion spent industry-wide. Hardware, software, and telecommunications follow, at 30%, 13%, and 10% respectively.

Part of the overall decrease can be attributed directly to smarter spending. Gillis says he worked during 1992 with a large bank where management wanted a detailed inventory of systems in use and how they were paid for.

"The net result was that for pure administrative and recordkeeping tasks, the bank was throwing away $12 million a year on software licenses," says Gillis. "Nobody was keeping track of them; it's like an accounts payable department that pays every incoming bill without checking them or getting anybody to approve them."

In many cases, notes Gillis, the bank had signed a ten-year software license contract, but had stopped using the software years before the contract expired.

In addition to smarter spending, there are several other reasons overall technology expenditures are decreasing. These include: fewer, more cost-efficient banks; bank mergers that have reduced the number of technology jobs; savings achieved in outsourcing arrangements; postponement of hardware purchases until more powerful versions are available; systems that last longer, so fewer replacements are needed; money saved by downsizing from mainframes to microcomputers. …

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